U.S. natgas futures ease on rising output, lower demand next week

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U.S. natural gas futures eased to a fresh one-week low on Monday on rising output, lower demand next week than previously projected and growing expectations the United States will have more than enough gas in storage for the winter heating season.

That price decline occurred despite forecasts for colder weather and more heating demand this week than previously expected and a 12% jump in gas prices in Europe that should keep U.S. liquefied natural gas (LNG) exports strong.

Since the summer, global gas prices have soared to record highs as utilities scrambled for LNG cargoes to refill low stockpiles in Europe and meet rising demand in Asia, where energy shortfalls have caused power blackouts in China.

U.S. futures also climbed, reaching a 12-year high in early October, on expectations LNG demand will remain strong for months to come.

Price gains in the United States, however, have been restrained compared with overseas markets because the United States has more than enough gas in storage for winter and ample production to meet domestic and export demand. Prices in Europe and Asia were about five times higher than in the United States.

Analysts expect U.S. gas inventories will top 3.6 trillion cubic feet (tcf) by the start of the winter heating season in November, which they said would be a comfortable level even though it falls shy of the five-year average of 3.7 tcf.

U.S. stockpiles were currently about 3% below the five-year average for this time of year. In Europe, analysts said stockpiles were about 15% below normal.

Front-month gas futures were down 5 cents, or 0.9%, to $5.376 per million British thermal units (mmBtu) at 8:32 a.m. EDT (1232 GMT), putting the contract on track for its lowest close since Oct. 22 for a third day in a row.

As the amount of gas in U.S. stockpiles keeps rising, speculators have cut their net long positions on the New York Mercantile and Intercontinental Exchanges over the past four weeks to their lowest since June 2020, according to data from the Commodity Futures Trading Commission (CFTC).

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Data provider Refinitiv said output in the U.S. Lower 48 states averaged 94.1 billion cubic feet per day (bcfd) in October, up from 92.7 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.

Output hit 96.2 bcfd on Oct. 29, its highest level in a day since hitting a record of 96.6 bcfd during November 2019.

Refinitiv projected average U.S. gas demand, including exports, would rise from 96.4 bcfd this week to 100.4 bcfd next week as more homes and businesses crank up their heaters. The forecast for this week was higher than Refinitiv projected on Friday, while its outlook for next week was lower.

The amount of gas flowing to U.S. LNG export plants has averaged 10.5 bcfd so far in October, up from 10.4 bcfd in September.

Feedgas to LNG export plants hit 11.8 bcfd on Oct. 29, its highest level in a day since May.

With gas prices near $24 per mmBtu in Europe and $30 in Asia, versus around $5 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.

But no matter how high global gas prices rise, the United States has the capacity to turn only about 10.5 bcfd of gas into LNG. The rest of the gas flowing to the export plants is used to fuel the power plants and other equipment at the facilities.